A provision tucked away in President Trump’s spending bill could impose billions in extra taxes on New York’s highest-earning businesses. There’s concern that this could further drive companies out of a state that’s already seen significant discontent with local funding, according to insights from the Post.
In what seems like a hidden detail within the extensive federal tax reductions, known as the “Big, Beautiful Building,” there’s a proposal that aims to curb workarounds to the state and local tax (SALT) deduction caps, specifically via pass-through entity taxes (PTET).
This adjustment seems to be an effort by GOP lawmakers to address the SALT deduction changes that significantly impacted New Yorkers during Trump’s previous presidential term, reducing what many considered a substantial tax break.
EJ McMahon, affiliated with the Manhattan Institute of Policy Research, mentioned that “there’s definitely tension here.”
The Republican spending bill, which recently advanced through the House Budget Committee, suggests a raise in the SALT deduction cap from $10,000 to $30,000 for earners below $431,000 annually.
However, former partners from CPA firms across the country, who spoke under the condition of anonymity, argue that reducing PTET could effectively increase tax rates by a noticeable margin—about six percentage points, impacting the very deductions lawmakers are proposing to adjust.
Currently, businesses organized as partnerships can lower their taxes from 10% to around 4% using PTET, as some sources clarified.
There’s a possibility, according to personal finance expert Bobby Rebel, that for companies facing mobility issues, this might just be the tipping point.
Many of these top-tier companies earn far more than $431,000 and won’t benefit from the new SALT cap. Even those that do find themselves eligible might not glean much from the $30,000 credit, as it’s hardly significant for those contributing largely to New York’s tax base, McMahon added.
From another angle, smaller local businesses could find themselves similarly burdened by the loss of PTET, potentially making their survival even tougher, experts noted.
There’s a perspective shared by a former partner at a New York accounting firm who commented to the Post.
Recently, Trump has been rallying GOP lawmakers to back this spending bill.
The White House hasn’t yet responded to requests for comments.
The International Association of Professional Accountants has called on lawmakers to rally against the removal of PTET.
McMahon also pointed out that eliminating PTET could take away New York City’s 4% unincorporated business tax deduction, which might put additional strain on residents.
The New York City Finance and Budget Agency didn’t provide immediate comments when contacted.
During his first term, Trump enacted the Tax Cuts and Jobs Act in 2017.
PTET was introduced as a workaround for the SALT cap, allowing partnerships and small businesses to pay personal income taxes rather than business taxes, benefiting from significant deductions.
The IRS greenlit these regulations in 2020, just days after Trump’s reelection loss to Joe Biden, and this system has since been adopted by at least 36 states across the U.S.
Interestingly, between 2018 and 2022, over 125,000 residents from New York City made their way to Florida, as reported by a survey from the Nonpartisan Citizens’ Budget Committee.
Moreover, Bloomberg reported that nearly 160 Wall Street firms managing around $1 trillion in assets have shifted their headquarters out of New York since late 2019.
